Most retirement planning focuses on accumulation: how much to save, where to invest, and when you have enough to stop working. Far less attention goes to the distribution phase — specifically, which accounts to draw from first, how much, and why the order matters so much.
A retiree with $2M split across taxable, traditional, and Roth accounts has many options for generating $80,000/year in income. But not all options are equal. The wrong order can push income into higher brackets, trigger ACA subsidy clawbacks, accelerate RMDs, or waste the 0% capital gains rate. The right order avoids all of those — legally and without complexity.
This article is for educational purposes only and does not constitute tax or financial advice. Retirement withdrawal strategies involve complex and evolving tax rules. Consult a CPA or fee-only CFP before implementing any withdrawal sequence.
The optimal withdrawal order (general framework)
Required Minimum Distributions (RMDs)
If you're 73+, take RMDs first — they're mandatory. Failing to take them triggers a 25% excise tax on the amount not withdrawn.
Taxable brokerage account (basis/principal first)
Withdrawing original cost basis from taxable accounts is zero-tax income — it doesn't count as MAGI. Harvest long-term gains at 0% if income allows.
Traditional IRA / 401(k) — fill the bracket strategically
Draw only enough from traditional accounts to fill your target tax bracket (usually the top of the 12% bracket). The remainder of this year's income need comes from tax-free sources.
Roth IRA contributions (penalty-free at any age)
Roth contributions are zero-tax and zero-MAGI. Use these to top up spending above what taxable and traditional buckets provide — preserving Roth earnings for longer compounding.
Roth IRA earnings (last resort)
Tax-free and penalty-free after 59½ and after the 5-year rule is satisfied. Preserve these as long as possible — they're the most tax-advantaged dollars you own.
Bracket filling: the core skill
The concept of "bracket filling" is the most important technique in tax-efficient retirement withdrawal. Each year, you deliberately draw enough from traditional (pre-tax) accounts to fill your current tax bracket — converting or withdrawing up to the top of the 12% bracket, for example — and then switch to tax-free sources for the rest.
In 2026, for a married couple filing jointly, the 12% bracket ends at approximately $120,000 of taxable income. With the standard deduction of ~$30,200, that means you can have up to $150,200 in total income before your withdrawals start hitting the 22% bracket.
The couple takes $59,800 from traditional sources (standard deduction + 10% bracket + 12% bracket fill), pays approximately $8,300 in federal income tax (~9.2% effective rate), then draws the remaining $30,200 from Roth contributions or taxable basis — completely tax-free.
Roth conversions: filling the bracket proactively
In early retirement years when your income is especially low, you may not need to withdraw much from any account — your spending is met by taxable accounts and Roth contributions. But you can still fill your tax bracket proactively by doing Roth conversions.
If your taxable income before conversions is only $40,000 (within the 10% bracket), you could convert $80,000 of traditional IRA to Roth and still stay within the 12% bracket (total taxable income: $120,000, just under the 22% threshold). You pay 10–12% on the converted amount now, rather than 22–32% when RMDs force those withdrawals later.
This proactive bracket filling during low-income years is one of the highest-value moves in FIRE retirement planning — it permanently moves money from a taxable bucket to a tax-free one at the lowest possible rate.
Real example: Kevin and Mia, retired at 52
Kevin and Mia have $1.8M total: $900k traditional IRA, $500k Roth IRA ($200k contributions, $300k earnings), $400k taxable brokerage. They spend $85,000/year. Here is their Year 1 withdrawal plan:
| Source | Amount | MAGI impact | Tax |
|---|---|---|---|
| Taxable account (cost basis return) | $25,000 | $0 | $0 |
| Roth IRA contributions | $20,000 | $0 | $0 |
| Traditional IRA withdrawal (bracket fill) | $40,000 | $40,000 | ~$3,200 (8% effective) |
| Total spending | $85,000 | $40,000 MAGI | ~$3,200 total |
Simultaneously, they convert an additional $40,000 from traditional IRA to Roth (filling up to the 12% bracket ceiling), paying ~$4,800 in tax on the conversion. Total tax for the year: ~$8,000 on $85,000 in spending — a 9.4% effective federal rate. Compare this to simply drawing $85,000 from the traditional IRA and paying ~$12,800 (15% effective) — a saving of nearly $5,000 per year. Over 20 years, that difference compounds to over $100,000 in preserved wealth.
Tax-efficient withdrawal isn't about avoiding taxes permanently — it's about paying taxes at the lowest possible rate across your lifetime. Fill low brackets with taxable income each year. Convert when the bracket is cheap. Keep Roth earnings untouched as long as possible. The order creates the outcome.
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